Future of Electric Cars - Is There One?

Visiting today at the Detroit Automotive Press Association was
another top analyst group. This one, The Boston Consulting Group, a highly
respected international business consultancy (not just focused on
automotive but other kinds of businesses as well), came to share their
assessment of how electric car battery technology will determine where
electric and hybrid-electric cars will fit into the overall market by 2020.

Xavier Mosquet, senior partner, leader of BCG’s Automotive
practice and director of the firm’s Detroit office, led the
presentation in his charming French accent. His colleague Massimo Russo,
(no accent at all) partner and core member of the firm’s Industrial
Goods and Operations practices, helped lead the BCG team that advised the
Obama administration on the restructurings of GM and Chrysler. Both have
lists of accomplishments in their bios that scream credibility.

Despite continuing emphasis from within, and without, the automobile
industry, electrification of our automotive lives remains uncertain and the
BCG guys came to share their substantial research and analysis with the
assembled press. The bottom line: “Cost and technology issues make a
mass market for fully electric vehicles unlikely by 2020.”

One measure of the feasibility of electric cars is the cost of the
batteries. The oft-stated goal is to get the cost to around $200 to 250/
kilowatt-hour based on costs of the same technology powering small devices.
That doesn’t account for the more specialized nature of the larger
version in automotive applications where a 10-year life is expected and
safety and cooling issues are much different. The BCG report presented
today estimates that about the best we can expect, without a major,
currently unforeseeable, advancement in battery technology is $360 to
400/kWh. The average cost today for all these forward-looking batteries is
nearly $1,000/kWh.

That’s a long way to go.

Remember the GM EV1 electric car of the 1990s? Back then GM was
counting on a major advancement in battery technology to make that car
economically possible. That breakthrough never came. Even our current
lithium-ion configurations, while way better than what powered the EV1, is
still not efficient enough to be economically self-sustainable.

Will the value of the battery packs at the end of their automotive
life help mitigate the cost of manufacturing?

Not likely, says the BCG team. Whether we consider non-automotive
power storage options or reuse for other purposes at the end of the
projected 10-years life, they’ll have not enough value to make much
difference.

The main consideration for the consumers will be total cost of
ownership. Variables will include the price of the battery packs,
government incentives, oil prices, electricity prices and many other
factors. Without substantial incentives and assuming $100/barrel oil, an EV
rated against a comparable internal combustion-powered car in 2020, the
break-even time might be in the range of 15 to 19 years in the US. With
substantial incentives in western markets, that could be 1 to 5 years. To
break even in 3 years you would have to assume: $215/kWh, $7,700 in
government incentives, annual driving of less than 40,000, $375/ barrel oil
and an increase in gas taxes of 210%.

A mighty unlikely scenario, it seems to me.

What about building batteries in low-labor cost places like Eastern
Europe or Asia? Would that help?

Not really. Batteries are not particularly labor-intensive to
manufacturer but are very raw material-intensive – and very heavy
materials at that – so shipping costs would far outweigh any savings
in labor.

The likely market share in 2020 for pure electrics and
range-extended hybrids (like the Volt) combined will be around 3 to 5%,
predicts BCG.

“The electric-vehicle and lithium-ion battery businesses hold
the promise of large potential profit pools for both incumbents and new
players,” they conclude, “however, investing in these
technologies entails substantial risks . . . The stakes are very
high.”

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